village corruption in indonesia

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Indonesian Social Development Papers

Since 1998, Indonesia has been undergoing a momentous political and economic transition. The fall of

the New Order, the economic crisis (krismon), and radical decentralization have changed the political,

economic and social context. Within this new context, power relations are in flux, identities are being

renegotiated, and institutions are changing. Changes in incentives, and in the role of formal andinformal institutions at various levels, has altered the ways in which individuals and groups relate to

each other and the state. Understanding this new context, and the ways in which various actors

(national and international) can promote progressive social change is important.

The Indonesian Social Development Papers series aims to further discussion on a range of issues

relating to the current social and political context in Indonesia, and to help in the generation of ideas on

how democratic and peaceful transition can be supported. The series will cover a range of issues

including conflict, development, corruption, governance, the role of the security sector, and so on.

Each paper presents research on a particular dimension of social development and offers pragmatic

policy suggestions. Papers also attempt to assess the impact of various interventionsfrom local and

national actors, as well as international development institutionson preexisting contexts andprocesses of change.

The papers in the series are works in progress. The emphasis is on generating discussion amongst

different stakeholdersincluding government, civil society, and international institutionsrather than

offering absolute conclusions. It is hoped that they will stimulate further discussions of the questions

they seek to answer, the hypotheses they test, and the recommendations they prescribe.

Luthfi Ashari and Patrick Barron (series editors)

[email protected]@worldbank.org


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Vil lage Corrupt ion in Indonesia

Fighting Corruption in IndonesiasKecamatan Development Program

Andrea Woodhouse

April 2005

Indonesian Social Development Paper No. 6

When writing the paper, the author was a consultant working on a World Bank-funded community developmentprogram in Indonesia, the Kecamatan Development Program (KDP). The views expressed in the paper are theauthors own and do not necessarily reflect the views of the World Bank or KDP.

The author can be contacted at: [email protected]


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Papers in the Indonesian Social Development series are not formal publications of the World Bank.They are published informally and circulated to encourage discussion and comment between thoseinterested in Indonesian development issues. The findings, interpretations, judgments, and conclusionsexpressed in the paper are those of the authors and should not be attributed to the World Bank, to itsaffiliated organizations, or to members of the Board of Executive Directors or the governments theyrepresent.

Please direct comments to the author: [email protected]

Copies of this paper are available from:

World Bank Office JakartaJalan Cik Di Tiro 68A, MentengJakarta PusatIndonesiaTel: +62 (0)21 391 1908/9

Fax: +62 (0)21 392 4640

Design by kaptenadoleCover photograph by Poriaman Sitanggang


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Acknowledgements

Several people gave me help and advice at all stages of the report. It is the result of their efforts as much

as mine.

First, I would like to thank Scott Guggenheim, whose help and guidance provide the foundation for theentire paper. Second, I would like to thank Bob Klitgaard (RAND), who has continually gone far

beyond the call of duty as a peer reviewer and has advised me not only on the paper itself but also on

how best to make it useful. Third, I would like to thank Sarwar Lateef, who has given considerable

ongoing support to the research and its wider aims.

The KDP team in Jakarta helped me at all stages. I would like to give special thanks to Ela Hasanah

(KDPs project historian and a member of the team that originally designed KDP), who collaborated

with me at every stage of the research. I am grateful to Pieter Evers, who contributed an analysis of the

rural judiciary in Indonesia to this paper and whose work on village governance informed many of my

initial ideas. Ibnu Taufan, Susan Wong, Susanto Simanjuntak, Victor Bottini and staff of KDPs

Handling Complaints Unit helped identify problems, arrange fieldwork, and assess field findings.Milissa Day gave me invaluable advice on fieldwork and writing.

Several people helped me with fieldwork. These include the villagers who participated in the research;

my field assistant, Liebe Ibet; and local KDP field staff: Martius, Subeyang, Idrus, John Masengi,

Sentot Satria, and several kecamatan facilitators. The facilitators deserve special mention for helping

me despite their already overstretched workloads. They are the front line of anti-corruption activities in

KDP and deserve credit for their efforts to fight corruption despite the risk of threats and intimidation

involved in doing so.

I am indebted to many people who read the draft and suggested improvements. These include my peer

reviewers, Susan Rose-Ackerman (Yale), Robert Klitgaard (RAND), Michael Richards (World Bank)

and Paul McCarthy (World Bank). They also include Surendra Agarwal, Vivi Alatas, Judith Edstrom,Ben Fisher, Cyprian Fisiy, Richard Holloway (UNDP), Kai Kaiser, Menno Pradhan, Naseer Rana,

Unggul Suprayitno and Stefanie Teggemann. I would like to thank Stephen Woodhouse (UNICEF) for

sharing his insights on social development in Indonesia, and would like to thank David Madden and

Claire Smith for their comments and ongoing support throughout the analysis.

I am grateful for having had the opportunity to present and discuss my findings with classes of students

at the John F. Kennedy School of Government at Harvard University and the Center for Agrarian

Studies at Yale University. I would like to thank the students themselves for their insightful comments,

and would like to thank Lant Pritchett (Harvard) and Michael Dove (Yale) for inviting Scott

Guggenheim and me to their classes. I am also grateful to Peter Eigen (Transparency International),

who gave me the same opportunity as part of his anti-corruption course at the School of Advanced

International Study (SAIS) at Johns Hopkins University.


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VILLAGE CORRUPTION IN INDONESIA: FIGHTING CORRUPTION IN THE WORLD BANKS KECAMATAN DEVELOPMENT PROGRAM II

Table of Content s

Acknowledgements ...................................................................................................................................... i

Table of Contents ........................................................................................................................................ ii

Preface ......................................................................................................................................................... iii

Executive Summary................................................................................................................................... iv

Introduction................................................................................................................................................. 1

Analytical Framework ............................................................................................................................... 3

Chapter 1. Community Development in Indonesia ...............................................................................7

Chapter 2. Corruption in KDP............................................................................................................... 15

Chapter 3. Recommendations for Improvement ................................................................................. 34

Conclusion.................................................................................................................................................. 42

Annex I. Historical Background............................................................................................................ 44

Annex II. Corruption Map of the KDP Project Cycle......................................................................... 46

Bibliography .............................................................................................................................................. 58


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VILLAGE CORRUPTION IN INDONESIA: FIGHTING CORRUPTION IN THE WORLD BANKS KECAMATAN DEVELOPMENT PROGRAM III

Preface

This paper was written in 2001. At the time, Indonesia was only three years into reformasi (political

reform), the era of political change ushered in by President Suhartos resignation in 1998. Indonesiawas also about to embark on one of the most far-reaching decentralization programs in the world.

At the time of writing, I argued that corruption in any village development program in Indonesia couldnot be understood outside the context of village politics and government. The paper thus analyzed theconditions of village life that enabled corruption to flourish easily during the Suharto era. Theseincluded political conditions such as a ban on village political activity, a history of impunity and a weak judicial system, and administrative conditions, such as high levels of bureaucracy and hierarchicalvillage government structures that provided few avenues for villagers to complain.

In the paper, I argued that political reform and decentralization were likely to affect these conditions,but that we knew little about how. Political reform, I argued, could provide the space in villages foropen criticism and protest. Decentralization brought with it the possibility for greater village

transparency by introducing an elected village representative board but, because the laws gave greatleeway to district governments in determining village affairs, the effect of decentralization oncorruption was likely to vary.

I shall not attempt here to assess precisely what effect these changes have had, four years later, oncorruption in Indonesian villages. To do so would be a huge empirical undertaking, and much has beenwritten elsewhere about these changes, particularly on the impact of decentralization on corruption.Two things, however, can be said with confidence.

First, the era of political openness ushered in after Suhartos resignation has solidified.Reformasi was a

shaky process, and Indonesia is still democratizing. But, four years later, politics in Indonesia has

become a vibrant and open arena, with plenty of activity and competition. In late 2004, Indonesia had

its first direct elections for president, an election contested and held in thousands of villages across the

country without any major disruptions. The government of Susilo Bambang Yudhoyono (SBY) came

to power on a platform of anti-corruption and transparency.

Second, decentralization has introduced much greater variance in village government across the

country. There is now diversity where once there was uniformity. Village representative boards have

been introduced, but the way they have been put in placeand their effectiveness as an agent of

transparency and participationvaries widely across the country. Decentralization has also provided

for the revival of local forms of government. The challenge for village development programs seeking

to prevent corruption will be to find ways to respond to these local environments while maintaining key

principles of anti-corruption.

Andrea Woodhouse

Jakarta, March 2005


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VILLAGE CORRUPTION IN INDONESIA: FIGHTING CORRUPTION IN THE WORLD BANKS KECAMATAN DEVELOPMENT PROGRAM IV

Executive Summary

What works to limit corruption in a large rural development project in a country with endemic

corruption, a weak legal system, and a history of top-down political control by a powerful statebureaucracy?

The Kecamatan Development Program (KDP) is a $273 million World Bank-funded community-

driven development project in Indonesia that funds infrastructure and small loans in over 20,000

villages nationwide.1 Its approach to combating corruption is based on an analysis of the political

economy of corruption in Indonesian villages and is two pronged. First, it aims to change the conditions

that breed corruption in villages by breaking existing monopolies over information, resources, and

access to justice. Second, it aims to prevent corruption in the project itself by skewing the incentives of

the project structure against corrupt behavior.

At the heart of KDPs anti-corruption approach is the principle that villagers themselves have decision

making power over planning, procurement, and management of funds. Concrete measures underlyingthis approach include:

Simplifying financial formats so that they can be understood easily by villagers Transferring funds directly into collective village bank accounts Insisting that all financial transactions have at least three signatures and that villagers charged with

procuring goods obtain at least three quotations for doing so and share the results at public village

meetings.

Insisting that details of all financial transactions are posted on village notice boards Requiring regular village meetings to be held to account for project fundsand giving villagers the

right to suspend further disbursements if irregularities are found

Providing village-level sources of information and channels for complaints that are independent oflocal government

Intensive field-level supervision by elected village facilitators (two in each village) and sub-districtproject facilitators

Independent monitoring of the project by NGOs and local journalistsAlthough these measures have had some success, corruption persists in KDP. This paper examines

where, why, and how this takes place. Its findings are based on a series of ethnographic field

interviews, a review of the KDP field experience, an incentives analysis of the KDP project cycle, and a

survey of the literature on Indonesian village governance. The paper aims to get a sense of the

anatomy of corruption in KDP villages: of how the actors perceive their interests, what motivates them,

what kinds of constraints they face, and what kinds of steps they take to resolve their problems. The

underlying aim is to assess the kinds of anti-corruption measures that are likely to succeed in localprojects that operate in a systemically corrupt environment and in an overall project whose size and

breadth (20,000 villages nationwide) makes centralized control and monitoring of funds impossible.

The paper also uses corruption as a lens through which to view snapshots of social and political change

in Indonesian villages.

1 The follow-on project (2002-2006), KDP 2, is a $300 million project; its successor, KDP 3, $250 million.Combined, this makes KDP the largest World Bank poverty reduction/community development project in Asia.


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VILLAGE CORRUPTION IN INDONESIA: FIGHTING CORRUPTION IN THE WORLD BANKS KECAMATAN DEVELOPMENT PROGRAM V

The paper argues that corruption is primarily a problem of incentives, and can be fought effectively

only by changing the costs and benefits attached to corrupt behavior. It also argues that local contexts

and social norms are key to understanding how these incentives can be changed to reduce corruption.

The first part of the paper examines the conditions that enable corruption to flourish in Indonesian

villages. That corruption is encouraged by a combination of factors. High levels of bureaucracy and red

tape multiply opportunities for rent seeking in villages. A history of impunity for the perpetrators ofcorruption, combined with a legacy of oppression for whistleblowers, means that it is almost never in

the interest of an individual villager to protest corruption. The Indonesian state's administrative

structure concentrates power in village elites; this, combined with a weak and corrupt judicial system,

impedes poor people's access to justice and control over decision-making. Finally, the 1966-1998

Suharto governments conscious strategy of curtailing political activity in villages, combined with its

use of development funds as a means of patronage and control, has created an environment where

corruption is rarely resisted.

The second part of the paper examines corruption in KDP, based on a review of the KDP field

experience and an incentives analysis of the project cycle. Corruption in KDP takes several forms,

including budget markups, collusion, bribes, and kickbacks to local officials. The analysis reveals thatthe elements of the project most effective in limiting corruption are transparency, community

participation, and the provision of independent channels for resolving complaints. Information and

local control are key elements in both preventing and fighting corruption: the most successful strategies

for fighting corruption in KDP have hinged on publicizing anti-corruption activities, garnering wide

local support, and using sanctions credibly. Project facilitators are also key to fighting corruption: they

provide a channel of information to villagers independent of local government and, because they are

backed by the central KDP structure, they are more protected from threats and intimidation than

ordinary villagers. There is evidence also of some governance spillovers from KDP, illustrated by

examples of villagers using their experience of KDP as a precedent for protesting against corruption in

other non-KDP projects.

The incentives analysis of the project cycle identifies the stages most vulnerable to corruption. These liein proposal preparation (formation of false borrower groups for small loans); release of funds (collusion

among bank account signatories to embezzle funds); and implementation (collusion and corruption in

procurement). The analysis highlights several ways in which corruption could be better prevented.

These include improving information dissemination, working with social sanctions to make the

incentive structure less conducive to corruption, increasing incentives for KDP staff to fight corruption,

instituting measures at specific stages of the project cycle intended to limit monopoly, clarify discretion,

and improve accountability, and supporting the capacity of project facilitators to come up with flexible

local solutions to their problems.

This paper is an evaluation of the kinds of anti-corruption project design measures that are likely to

succeed in a large decentralized community project in an environment that is itself systemically corruptand whose history and state structures have embedded the conditions for corruption. It makes explicit

the successes and failures of a project that attempts to promote village-level governance reforms in an

uncertain and diverse political environment where national reforms have not yet solidified. In doing so,

it illustrates the impacts and dynamics of political transformation, local power structures, and social

change in rural communities in Indonesia.


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Introduction

A consensus is emerging in a large number of countries that effective poverty reduction requires a

strong governance framework: accountable institutions, participatory political systems, transparency,

and the rule of law. Fighting corruption is an essential part of this. Corruption hampers growth, divertspublic services from the poor; it discourages foreign investment in developing countries.2

The World Banks anti-corruption strategy calls for action in four key areas:

Preventing and reducing corruption in World Bank-funded projects Assisting countries that ask for help in reducing corruption Incorporating concern for corruption into country analysis and lending Contributing to the international effort to fight corruptionThis report is about the first area of action: preventing and reducing corruption in Bank-funded projects.

A first step toward this is an examination of existing projects to see how corruption takes place in them,

which design features work to allow it or prevent it, and what lessons can be drawn from their

experiences so that future projects limit corruption instead of contributing to it.

This report supports that aim. It analyzes where, why, and how corruption occurs in a large

decentralized community development project in Indonesia, the Kecamatan Development Program

(KDP).3 KDP is one of the first World Bank projects to make anti-corruption measures an explicit

design element. Reviewing the analytical framework and samples of the projects field experience

gives us useful material for improving future programs.

The key assumption of the report is that corruption is primarily a problem of incentives, and can only

be fought effectively by changing incentive structures. The paper is divided broadly into three parts:

An examination of the context of community development in Indonesia An analysis of KDP, based on field research, to see what kinds of corruption there are in KDP and

where the incentives for corruption in the project cycle lie, which project design features enable or

prevent corruption, and what the best strategies have been for fighting corruption in the project

Recommendations for improvement

2 On the effect of corruption on growth, see Mauro, Paulo. Corruption and Growth, Quarterly Journal ofEconomics, Aug. 1995, 110 (3), pp. 681-712. For the effect of corruption on public service delivery and foreigninvestment, see World Bank.Helping Countries Combat Corruption: the Role of the World Bank. Washington,DC: Poverty Reduction and Economic Management (PREM) Network, 1997, or World Bank.Helping CountriesCombat Corruption: Progress at the World Bank since 1997. Washington, DC: Operational Core Services (OCS)and Poverty Reduction and Economic Management (PREM) Network, 2000.3 For information about KDP, see its annual report. Kecamatan Development Program. Second Annual Report1999/2000. Kecamatan Development Program National Secretariat: September 2000.


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VILLAGE CORRUPTION IN INDONESIA: FIGHTING CORRUPTION IN INDONESIASKECAMATAN DEVELOPMENT PROGRAM 2

Why KDP?

Three features of KDP make it an especially interesting subject of study:

First, KDP is different from traditional development projects. It takes as its starting point the question

what do villagers want? rather than what do villagers need? drawing on community developmentexperience that suggests both that communities themselves are best at identifying what they need and

that the results, when they do so, are more likely to be sustainable. In other words, it is demand driven.

It is also highly decentralized. Most decisions are taken not at the center but in over 900 sub-districts

(kecamatan) and 20,000 villages across Indonesia.

KDPs differences make it interesting for a few reasons. First, its size and disparateness make it

impossible to control from the center. This diminishes the usefulness of traditional anti-corruption

instruments, such as audits and central monitoring. Instead, KDP tries to enable villagers themselves to

become anti-corruption agents by trying to ensure broad participation and transparency. Second, KDP

is an experiment. The hypothesis, borne out by the findings of a growing body of research, is that this

kind of project will work better than centralized, supply-driven projects in terms of sustainability,

benefiting poor people, andof special interest to this reportcombating corruption.4 But we do notyet know how well this hypothesis will be sustained in practice. Such projects are fairly new for the

World Bank and for Indonesia, so the sample of experience from which to draw on is limited. That is

why it is important to investigate how KDP works and, more importantly, why it works the way it does.

Despite its differences, KDP is similar enough to other development projects to provide useful cross-

project comparisons. It is large, and covers an area of great geographic and cultural diversity. Like all

Bank-funded projects, it works through government channels. Unlike bilateral or NGO projects, the

funds are in the form of a loan to the government of Indonesia, so KDP could not bypass the

government completely even if it wanted to do so. And KDP operates in a specific Indonesian

sociological and historical context, certain features of whichsuch as the administrative settinghave

a concrete effect on how the project can be run.Second, KDP is in a country at a critical juncture in its history. Indonesias reform process is unstable.

Although great changes have taken place, many of the authoritarian power structures of the Suharto-led

New Order period remain in place, and corruption is entrenched.5 The proposed reforms threaten the

interests of powerful forces in Indonesia, including those of the influential military.6 Against this

background, Indonesia is trying to push ahead with an ambitious program of reforms. KDP is at the

front of this reform agenda. It is as much a governance program as a poverty-alleviation program and,

4 For a discussion of the links between participatory, demand-driven community development approaches andsustainability, see Gross, Bruce; van Wijk, Christine; and Mukherjee, Nilanjana.Linking Sustainability withDemand, Gender and Poverty. Water and Sanitation Program: December 2000.5

The 2001 Corruption Perception Index, released by Transparency International in June 2001 ranks Indonesia as88th out of a survey of 91 countries, above only Nigeria and Bangladesh. The survey is a poll of polls fromdifferent sources and attempts to measure perceptions of corruption across countries. Transparency International.Corruption Perception Index 2001. Transparency International: 2001.6 Only about 25 percent of the militarys budget comes from government sources. The rest comes from off-budgetactivities, including businesses and protection rackets in local areas. Reforms that threaten to reduce their powerthus directly threaten their material interests. For a discussion of the role of the military, see International CrisisGroup.Indonesia: Keeping the Military under Control. International Crisis Group: 2000. Retrieved August 7,2001 < http://www.crisisweb.org/projects/asia/indonesia/reports/A400054_05092000.pdf>.


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where it works as it should, challenges elite control of village resources and decisions. The question is

whether, in such a political context, a program such as KDP can itself be a significant agent of change,

crystallizing nascent trends toward democracy into concrete changes in how village decisions are made.

Corruption is a lens through which to view this.

Third, KDPs network gives us a unique window onto the state of village governance in Indonesia.

Although rapidly urbanizing, Indonesia is predominantly rural: most of its population live in villages.While a great deal of attention is being paid to the effect of democratization at national level, very little

is known about the extent to which such changes are reflected at village level. Villages are sites of

hierarchy that, institutionally, have favored the interests of the powerful. KDP works closely with

village institutions and has a network of over 2,000 facilitators working in over 20,000 villages across

Indonesia. It, thus, affords us a rare insight into what is happening in these villages, yielding a rich and

unusual information set about social change in Indonesia. Focusing on corruption enables us to

examine issues closely related to this change, such as accountability, participation, and control of

resources.

This report thus has a dual purpose. Its primary purpose is to ask how corruption can be prevented in a

large, decentralized, community-level development project. Its subsidiary purpose is to gain interestingside snapshots of social transformation in Indonesia: how is it happening, and what does it look like?

Analytical Framew ork

In order to ask how corruption can be prevented in a project like KDP, this report starts with explaining

what we mean by corruption and by outlining our analytical approach.

Definitions

Corruption does not consist simply of bribes in grubby envelopes, but comes in many forms. It exists

when firms collude to fix prices above the market rate. It exists when civil servants demand a cut offunds to process public projects. It exists when officials hire their relatives for jobs that others could

do better. The forms of corruption are wide and various.

The World Bank uses a simple definition that covers many types of corruption: the abuse of public

office for private gain.7 This kind of definition is common in the corruption literature.8 It is broad

enough to encompass most types of corruption, including those that are difficult to measure, such as

nepotism. However, it is focused enough to draw parameters around corruption: to distinguish, for

instance, between bribery in the public sphere and gift giving in the private sphere.9 Furthermore, by

mentioning neither the law nor morality, it allows two important distinctions to be made: between what

is corrupt and what is illegal, and between what is corrupt and what is immoral. Although there may be

7 World Bank,Helping Countries Combat Corruption, p. 8.8 See Klitgaard, Robert; Maclean-Abaroa, Ronald; and Parris, H. Lindsey. Corrupt Cities. Oakland, CA: Institutefor Contemporary Studies Press, 2000, or Bardhan, Pranab. Corruption and Development: A Review of Issues,Journal of Economic Literature., Sept. 1998, XXXV, pp.1320-1346 for a discussion of different definitions andtypes of corruption. The definition we use covers many types of corruption: officials misuse their offices in thisway when they accept bribes; when they skirt procedures in exchange for favors; and when they ignore illegalpractices for a fee, for instance.9 This does not suggest that corruption is confined to the public sphere alone. Corruption does take place in theprivate sector. However, the World Bank is mainly concerned with corruption in the public sector.


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large overlaps between these concepts, their contours are distinct and it is important to keep them

analytically separate.

Analytical approach

Picking the right kind of analytical approach to corruption is instrumentally as well as theoreticallyimportant. Many anti-corruption strategies fail. Often, this is because they do not make the right

analytical distinctions and are excessively legalistic or moralistic. The anti-corruption literature

suggests that such anti-corruption campaigns are unlikely to have lasting effects.10

Legalistic anti-corruption strategies attempt to combat corruption by strengthening laws or creating

rules. They focus on creating regulatory environments that tighten the loopholes that allow corruption.

The assumption is that corruption can be fought by strengthening regulations against corrupt behavior.

Taken by itself, this assumption is flawed. Although regulations are arguably a necessary condition for

fighting corruption, they are not sufficient. Almost all countries have anti-corruption laws on their

books, yet the incidence of corruption among countries varies widely, without correspondence to the

strength or number of existing rules. Anti-corruption drives that are limited to regulations may,

paradoxically, increase opportunities for corruption by breeding regulations and red tape. More

fundamentally, though, they fail to distinguish clearly between rules and the motivation for following

rules. Fighting corruption demands focusing on motivations and opportunities, not the rules themselves.

Anti-corruption strategies couched in moral language fail for similar reasons. Such anti-corruption

strategies talk of cleaning up and a return to honesty and values in public life. They imply that

corruption would be rooted out if corrupt officials were replaced by honest public-spirited individuals.

The problem with this is that the proper locus of morality ultimately is people, whereas corruption lies

in systems. Combating corruption effectively demands regarding it as a problem of systemic rather than

personal failure. When an official steals money from a development budget, her motive may simply be

to send her son to a good school; the important failure is not in her, but in the system that allows her to

get away with stealing. Fighting corruption sustainably demands changing the system of rewards andpunishments so that stealing is no longer in anyones interest.

With both legal and moral approaches, success is subject to circumstance; when they succeed they do

so on an ad-hoc basis and with largely temporary effects. This is because they fail to recognize that

corruption is a problem of incentives, not of wickedness or rules. The most important element of any

sustainable anti-corruption strategy is changing the underlying system of incentives so that agents are

no longer motivated toward corrupt behavior.

This is the key premise of this report. In this kind of framework, legal actions are important, but only

insofar as their enforcement changes the cost-benefit equation for corruption.

The premise contains a hidden assumption about the way people act. It assumes that people are rational

and self-interestedthat, given a choice, they follow whatever course of action benefits them most.

The assumption, however, need not be narrow or economistic. It can be made with varying degrees of

strength. A strong version of the claim might define self-interest as allegiance only to the individual self

and define benefits in material terms. We make a weaker version of the claim, which may have

diminished explanatory power but which we believe better captures why people act the way they do.

Here, self-interest may encompass allegiance to ones family or peer group as well as to oneself, so

10 See Klitgaard et. al., Corrupt Cities.


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that the claim can explain human behavior motivated by feelings of solidarity or social bonds. The

benefits need not be calculated materially, but may include social status, power, or other intangible

rewards. And, although this version still implies that at some level self interest is a universal

phenomenon, it leaves room for its contentto vary widely across different cultural settings.

Indeed, one assumption of this report is that social norms have a significant effect on how people

perceive their interests. The practical challenge for projects wishing to minimize corruption is tounderstand how social norms work in the context of those projects and set up incentive systems

accordingly. The way that actors in a village-level community project in Indonesia perceive their

interests will differ from the way that those in a national highways project in China perceive theirs, and

the effectiveness of different anti-corruption instruments will vary accordingly.

The difference, however, lies not simply in the social norms themselves, but in how they get expressed

through institutions. The more grassroots and local the project, the more important the social norms and

personal relationships characteristic of village institutions are likely to be. The opposite is true of a

large-scale project whose participants are unknown to one another.

It is precisely for these kinds of reasons that an anti-corruption project design or strategy cannot be

formed a priori. It demands instead knowledge of both local context and the experience of similar typesof projects. Knowledge of local context is best formed with the involvement of local participants, who

often know best which kinds of incentives will have relative importance.

In the framework of incentives, we can see that corruption exists where the benefits outweigh the costs:

Benefits may include the amount of money an agent stands to gain, the social benefits that might accrue from this money,and the increase in power that might come from the transaction

Costs will include the severity of punishment, the monetary value of any fines, and any associated social costs. The calculation of benefits and costs will depend on the risk of getting caught and being held accountable. This ratio will be

lower where an agent has wide discretion over the transactionin other words, where few other agents are able to see

what is happeningand where there are few checks and balances over the agents actions.

Methodology

The report is based on an analysis of identified corruption cases in KDP, field visits to ten villages and

three provinces, and on-site interviews with central KDP project staff, KDP field consultants,

government officials, and villagers. It also makes use of information gathered during KDP supervision

missions to provinces other than those visited for this report. The report especially makes use of the

views of KDPs project historian and of staff from KDPs Complaints Handling Unit, who track and

follow up corruption cases that get reported.

The report is not a survey. It is an investigation of process. Its aim is to get a sense of the anatomy of

corruption in KDP villages: of how the actors perceive their interests, what motivates them, what kinds

of constraints they face, and the steps they take to resolve their problems.

With this in mind, we attempted for the first part of the analysis to reconstruct a limited number of

corruption cases in different KDP locations. In each village, we tried to interview most of the people

involved in the corruption case, from ordinary villagers to local government officials (including those


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accused of corruption), to see how each of the main players experienced and perceived the case. We

attempted also to get the stories of those unconnected with the case. This enabled us to get a multi-

layered thick description of what had happened. Sometimes, interviewees participated by drawing

maps and social diagrams of their villages.

The second major part of the research involved a review of samples of the KDP field experience and a

cost-benefit analysis of the KDP project cycle. The project is too large and complex to be susceptible asa single entity to a cost-benefit analysis. We therefore broke the project cycle down into a series of

small, discrete steps, and then analyzed the incentives for corruption at each step. We did this by

asking, at each stage of the project cycle:

Who are the main actors? What are the main operations under their control? What discretion do they have over their actions? What interest do they have in engaging in corrupt practice? What sanctions apply? What is the risk of being discovered? What are the accountability mechanisms attached? Do the actors have to explain themselves?

What are the social norms attached? Do these affect how the actors will perceive their interests?

The findings were drawn from an analysis of KDP corruption cases, field research, and the views of

KDP staff. In assigning weight to incentives they attempt to take into account as much as possible the

views of project participants.

The kind of information gathered from this exercise is necessarily anecdotal. With limited time and

resources, we were not able to go to more than three provinces. There was also an inherent selection

bias in picking locations: the locations visited were those where corruption had already been reported.

This is therefore neither a comprehensive nor a representative picture of village-level corruption in

Indonesia. Nevertheless, it gives us interesting discrete pictures of what corruption in KDP villages

looks like, and an idea of which elements of the project work to encourage or to limit it.


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Chapter 1. Comm unity Development in Indonesia

Political change and decentralization

Indonesia is in transition. At least two elements of this transition are likely to have a major impact on

village life in Indonesia. One is the effect of political change. The other is decentralization.

Political change

People arent really scared to report problems. Theyre not scared because things have

changed. Before, people used to be scared of the army, or the police. Theyre not anymore.

District-level KDP consultant, Toli-Toli district, Central Sulawesi

The Indonesian political environment has changed significantly since the demise of Suhartos New

Order government in 1998. It has been characterized by a trend toward democratization and the

strengthening of civil society, an attempt to redefine the position of the military in political life, and thedevolution of power to local governments. It has been characterized also by a breakdown of law and

order, a rise in civil unrest, separatism, and inter-communal violence.

These changes have affected village life in Indonesia in several ways. In some places, they have made

latent conflict overt. The New Order government placed an emphasis on order and harmonious social

relations, and potential conflict was largely stifled.

Political changes at the center have altered this. Exacerbated by economic difficulties and enabled by a

breakdown in the will and ability of the security apparatus to impose order, they have removed the

underpinnings of an apparent stability. In its place, tensions have emerged over issues such as land,

access to resources and political powertensions often manifested in ethnic terms. What it means for

these villages is that once-set relationships are in flux: old hierarchies are being redefined and crosscutwith new cleavages, leading to a shift in the way villagers perceive their interests.

Political reformreformasihas also changed the landscape. The impact ofreformasi at the national

level, manifested in open criticism and protest, has been significant.11 Its impact at village level is

unclear. Almost no evidence has come forward to suggest what impact, if any, reformasi is having on

political expression in villages. Anecdotal evidence in this report suggests that there has been some

kind of trickle-down effect, whereby villagers have some awareness of national changes and are

conscious of increased possibilities for protest.12 There thus seems to be some scope for a renewal of

political expression in villages, if limited at present to a heightened optimism in peoples minds.

However, whether this changes local power dynamics remains to be seen, given that many New Order

institutions remain in place at village level.

11 This is so even barring those displays of political protest that are alleged not to be genuine expressions ofpolitical opinion but displays of unrest organized from the top by groups wanting to create an impression ofinstability.12 Villagers we met spoke often ofreformasi and regional autonomy. Their level of political awareness was high.Mainly, this was because they watched Jakarta news on national television.


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Decentralization

In January 2001 Indonesia started to devolve most functions of national government to its 362 districts

(rural kabupaten and urban kotamadya). If fully implemented, this will make Indonesia one of the most

decentralized countries in the world. The legal framework for decentralization makes provision for

changes in village government. These changes could change quite substantially the way that Indonesian

villages are run, although vagueness in the wording of the laws means that in practice there may belittle change.

The spirit of the legislation points toward greater democracy at the local level: Law 22 of 1999 states

that the basis for village government regulations will be diversity, participation, real autonomy,

democratization and peoples empowerment.13 The law introduces a new village representative body,

theBadan Perwakilan Desa (BPD), whose members will be elected directly by villagers. This contrasts

sharply with the body it replaces, the Lembaga Musyarawah Desa (LMD), whose members were

effectively appointed by the village head. Under the new system, the village head can be held

accountable at BPD meetings, and the BPD has the right to ask that the village head be removed. This

could dilute quite substantially the present concentration of village power in village heads.

The BPD was made after the regional autonomy system came into place. The BPD areelected by us. That gives a greater degree of control. Now, the people have more power the

BPD system also gives us a way to resolve problems we have. Therell be fewer problems of

corruption now because we can check and control them.

Villager in Pagar Batu village, North Sumatra

However, despite their spirit, the laws provide few specific guidelines for how local empowerment will

materialize. For instance, specific regulations surrounding election to and the operation and powers of

the BPD have been left unclear, so whether its formation effectively increases popular control over

village government may be determined on an ad-hoc basis. The law also gives wide discretion to

district governments in determining village affairs.14 This means that there could be wide variation in

village government: some areas could have democratic, accountable local governments. whereasothers could maintain or even strengthen their hierarchical and autocratic governance structures.

The impact of decentralization on village life is thus uncertain. Village structures could become more

authoritarian in some places, limiting accountability and increasing the possibilities for corruption.

Alternatively, they could become significantly more democratic, opening up avenues of transparency

and accountability and raising the perceived costs of corrupt behavior.

13 Law 22 of 1999, cited in Antlv, Hans. Village Governance in Indonesia Past, Present and FutureChallenges. Paper presented at the PERCIK conference Dynamics of Local Politics in Indonesia: Yogyakarta,July 2000.14 See Evers, Pieter,Resourceful Villagers, Powerless Communities (Rural Village Government in Indonesia).Jakarta: World Bank/Bappenas Local Level Institutions Study, Mimeo, 2000.


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Village life in Indonesia

The experience of village life and previous projects in villages is a crucial factor in influencing how

actors in KDP perceive their interests and rights. It affects how actors calculate the costs and benefits of

corrupt behavior and affects the will and ability of villagers to protest if they suspect foul play. Thus

any understanding of how to fight corruption in KDP, of what motivates its agents, and of what factorsenable corruption must rest on an understanding of what life in an Indonesian village is like.

It is not an easy understanding to reach. Indonesia is diverse and generalizations are hard to make. Yet

despite this, there are some family resemblances among villages that enable a rough picture to be

drawn.

A village (desa) is the lowest unit of government administration in Indonesia. Many villages came into

existence only with Law 5 of 1979, which imposed uniformity in form and structure onto Indonesian

communities. Many of these had originally been smaller and organically formed.15 Because villages are

political, rather than social, units, their boundaries may cut across traditional boundaries of land drawn

according to adat(local custom). They are divided into hamlets (dusun), groupings that, being small

and generally homogeneous, are often socially more cohesive than villages. Hamlets are sometimesphysically far apart from one another, and communication among hamlets varies. Some hamlets consist

of people from an ethnic group entirely different from others in the same village, usually because one

consists of migrants from another part of Indonesia. In Java, many villages are extremely large. This

limits cohesiveness and control.

A village is led by a village head (kepala desa), who is paid by the government. In rural villages, the

village head is elected by villagers but ratified by the district head. In urban villages ( kelurahan) the

head (lurah) is appointed. Village regulations ensure that almost all power is concentrated in the village

head, who is accountable not to villagers but only upward to the district head.16 Because running for

office is expensive, village heads tend to be from richer families, although not in recent years from the

traditional land-owning elite, for whom the gains to be had from the post are often not worth theeffort.17 The cost of running for office places pressure on village heads to use their time in office to

recoup as much money as possible.

Apart from the village head, there are a few other officialsmainly the hamlet chiefsand a couple of

village councils, which are deliberative forums for villagers to communicate their views on village

issues and priorities. For the most part, though, power rests with the village head. The councils have

little decision-making power and the village head and his officers tend to predominate in them 18

15 Law 22 of 1999 replaces Law 5 of 1979. The preamble to the law considers that Law 5 of 1979 is no longersuitable with the spirit of the 1945 Constitution and the significance to acknowledge and to respect the privileges

of Regions (my italics). From Law 22 of 1999 text,16 See Evers, Resourceful Villager, Powerless Communities for details.17 An interesting discussion about how this applies in Java can be found in Frans Hskens article VillageElections in Central Java: State Control or Local Democracy? in Antlv, Hans and Sevn Cederroth,Leadershipon Java. Surrey, UK: Curzon Press, 1994. Hsken studied 50 candidates for village head in 9 villages in CentralJava in 1989 and found that the traditional elite families are hardly representedAsked why they had withdrawn,their answer was perfectly simple and straightforward: the advantages of being a lurah no longer outweighed theburden of the job.18 Usually his. Village heads are rarely female.


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Three aspects of Indonesian village life have an especially important effect on the workings of village

corruption. The first of these is the influence of a heavy and centralized state bureaucracy, government

rural policy, and state administrative mechanisms on the incentives for corruption in villages. The

second is the effect of a corrupt and inaccessible legal system on village accountability and corruption.

The third is the way in which development projects themselves have been run.

The state, politics, and village corruption

Villages are institutional battlegrounds for control over people and resources. Historically, the state has

given material and institutional backing to village elites in an attempt to co-opt potential opposition.

State backing of some groups over others has created serious problemsincluding creating the

conditions for widespread corruption.

The environment in an Indonesian village is one in which corruption flourishes easily and is difficult to

root out. It is peculiarly embedded. To understand why, think of a stable structure locked into place by

several pillars. If enough pillars are removed, the structure collapses. But removing only one or two

simply distributes the load to the others.

Corruption in a village is somewhat the same. The central pillar of support is the omnipresence and

omnipotence of the state. Indonesian villages are characterized by the massive presence of both the

government bureaucracy and, through the territorial command structure that matches it, the military.

Almost all of an Indonesian villagers dealings with the outside world or with government involve

bureaucratic procedures of one kind or another.19 Such high levels of red tape breed opportunities for

village officials to gain smallor, in the case of land transfers, largeamounts of money through

embezzling funds and extorting fees for services. The participating officials have a monopoly over

these procedures and have wide discretion over their actions.

The history of impunity acts as the second pillar of support, enabling village officials to exploit such

rent-seeking opportunities. Village officials know that the sanctions for corruption have been few and

rarely enforced. This lessens the perceived cost of corrupt behavior. For their part, villagers know thatwhistleblowers have few protections and small likelihood of redress. They also know that most

previous attempts at fighting corruption have been futile. This increases the costs associated with an

attempt to fight corruption, meaning that in most cases the strictly rational course of action for any

individual villager is apathy. This enhances even further the culture of impunity.

19 Hans Antlv describes the multitude of paperwork required in his article Village Leaders and the New Orderin Antlv and Cederroth,Leadership on Java. Let me exemplify the variety of official letters by the experienceof a young man, Dadang, who wanted to join the Navy. Dadang knew this would take much time and energy. Hearmed himself with twenty photos and a letter of recommendation from his father, a school headmaster. First,

Dadang had to go to the sub-district Bureau of Education to get his high school diploma validated. He took thisback to the village, and asked for a letter of Good Behaviour, a letter of self-Cleanness, a Birth Certificate, anda letter of residency. All these letters had to be signed by the headman, the Police Community Guidance Officerand the Army Village Guidance Officer. He took the signed letters to the Majalaya police and army commandswhere the letters were co-signed by police and army officials. They were brought back to the village office, whereDadang obtained a letter of recommendation from the village secretary, sanctioning his application. All this wasthen brought to the sub-district office in Majalaya, where the deputy leader, after being asked by Dadangs father,wrote a similar letter of recommendation. All this was necessary just to get drafted for the test. The wholeprocedure had cost Dadang and his father 25,000 rupiah. When Dadang later failed the test, his friends said that heforgot to bribe the drafting officers.


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[The villagers] are used to old-style bureaucrats, who are like kings, who think they are like

kings, who are never wrong. And nothing will happen. In their experience, if they report

problems to a bureaucrat, there will be no response, so why bother?

Civil servant, Kecamatan Palipi, North Sumatra

A third pillar of support is deference and fear. The average Indonesian village is characterized by

hierarchy, with a tradition of not questioning those in power. Its traditional social arrangements mightnot be hierarchical, as this varies across Indonesia, but it almost certainly has a hierarchical political

culture. Indeed, a visitor to a village at least during the period of the New Order government might

think it curiously de-politicized, with a paternalistic political culture and an emphasis on bowing to

consensusa direct result of New Order policies toward rural areas.20 Such hierarchical political

relations limit popular pressure on the powerful.

Holding the structure together is an administrative setting that gives villagers few formal avenues to

complain. Although elected by villagers, the village head is formally accountable only to the district

head. This gives him wide discretion over his actions and lowers the costs associated with corruption.

Indeed, it may increase the costs associated with notacting in a corrupt way, as the village head may be

put under pressure to collude with his superiors. Complaints are resolved by musyawarah, a process of

discussion and consensus building. But it is the village head who organizes the musyawarah, and only

if popular pressure is extraordinarily strong does he have an incentive to pursue problems in which he

or his peers are implicated.21

Rural justice and village corruption

Justice is for the rich man, the man who has power.

Villager, Kotabumi, Lampung

The failings of the formal justice system lock this structure of village corruption even further into

place.22 Some of these weaknesses are peculiar to the Indonesian legal system; others are more a

function of the special problems of rural life. Both types of weakness have a strong effect on the

workings of corruption in Indonesian villages.

The heart of the problem is that, rather than being a buffer against corrupt behavior, the legal system is

an active and knowing participant in it. In a better functioning system, the courts might be expected to

act as arbiters of last resort, ablealbeit with slowness, inefficiency, or other flawsto act

independently and with some degree of fairness. The presence of an institution able, even imperfectly,

to act independently of vested interests is especially important in an environment in which the other

mechanisms of accountability have failed.

This is not true of the Indonesian courts. Instead, the courts are where impunity for the perpetrators of

corruption is realized. The Indonesian legal system is perceived to be thoroughly corrupt. It is

commonly assumed that all court decisions are for sale: that everything is negotiable for parties paying

20 See Annex I: Historical Background.21 When we asked what steps they would take to resolve a problem, most villagers we met replied that they wouldgo to see the village head. When asked what they would do if the problem involved the village head, most couldnot think of a response.22 I would like to thank Pieter Evers especially for contributing background information and analysis of theworkings of the rural justice system.


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the highest bribes or with the most important contacts.23 This level of corruption extends to the police,

who are charged with finding evidence in court cases. As a result, trust in the police and the courts is

low, corruption cases are rarely brought to court and, when they are, a pretext is often found to drop

cases or otherwise skew the court process. Potential perpetrators of corruption in villages know that the

risk of being charged legally with corruption is slim and the risk of punishment even slimmer. Villagers

know this too.Why would I go to the police [for anything]? If someone stole my chicken, Id have to pay the

same as a pig in bribes.

Villager, Wamena, West Papua

A further problem is collusion and lack of independence. The relationships among legal and local

government officials tend, especially in rural areas, to be close and personal. This erodes the separation

of institutional functions necessary to preserve the independence of the judiciary. The chief of the local

court is often included in the musyawarah pimpinan daerah (consultation of leaders of the region), an

informal consultation among local government, the prosecutor, police officers and the military high

command. Such consultations provide an opportunity for these officials to pressure the local court chief

to act in accordance with their interests.24

As a result, even when corruption cases are brought againstgovernment officials, they rarely succeed. The overlap of functions both reflects and strengthens the

culture of favor and patronage among local officials. It is one that infuses all levels of the government

hierarchy, and serves to embed even further the culture of impunity for corruption.

A third problem is a lack of witness protection. There is no witness protection program in the

Indonesian legal system, either formally or in practice. Accordingly, threats and intimidation of

witnesses are common. Protecting witnesses is especially difficulties in rural communities where

anonymity is unknown: in such an environment, it is difficult to ensure that whistleblowers are not, in

the words of one specialist, knifed in the paddy field at midnight.

These weaknesses of the Indonesian legal system are compounded by problems that stem from the

special nature of rural communities: distance and cost. The court system in Indonesia extends down tothe district level only, and so the most accessible courts are found in district capitals. From many rural

villages, these are difficult and costly to reach: from remote areas, this may take a day or more. Even

participating as a witness for the information-gathering exercises of the local prosecutor costs money.

This cost is borne by the witnesses themselves, and the government has no budget for such operational

costs. All of these problems mean that the cost in rural areas of any villager-led attempt to use the legal

system is prohibitively high, which provides a strong disincentive for participating in it.

A final obstacle to accountability in Indonesian villages is lack of awareness. The level of awareness of

rights, legal processes, and legal resources among the Indonesian public is low. In 2001 the Asia

Foundation found in a survey of Indonesian citizens that only 56 percent of respondents were able to

23 This is borne out by the empirical evidence that is available concerning peoples attitudes toward the courts. The2001 Partnership for Governance Diagnostic Survey of Corruption in Indonesia found that the judiciary wasconsidered the third most corrupt institution in Indonesia. (Partnership for Governance Reform in Indonesia.ADiagnostic Study of Corruption in Indonesia. Jakarta: Partnership for Governance Reform in Indonesia, 2002.) AnAsia Foundation 2001 survey found that 57 percent of respondents felt the judiciary was corrupt (Asia Foundation.Survey Report on Citizens Perceptions of the Indonesian Justice Sector - Preliminary Findings and

Recommendations. Jakarta: Asia Foundation, 2001).24 Internal World Bank note (Note on Rural Judiciary), Pieter Evers, 2002.


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identify a single right to which they were entitled. In rural areas, that figure dropped to 33 percent.25

This lack of awareness makes the environment in villages even more conducive to corrupt behavior.

Development projects and village corruption

Development projects themselves have contributed significantly toward corruption in Indonesian

villages. Their funds have historically been a fertile source of enrichment for local government

officials and village elites. In 1997 the World Bank estimated that, despite acknowledged difficulties in

quantification, between 20 and 30 percent of the governments development budget funds were lost due

to leakage, Bank-sourced funds included.26

There are several reasons why development projects have contributed to corruption in villages.

Historically, the Indonesian government used development as a form of patronage: foreign aid funds

were used as a direct means of co-opting potential opposition in villages, and development projects

were used as a way of keeping communities happy. The governments budget arrangements also create

a strong incentive for implementing agencies to misuse foreign aid funds. Each agencys projected

revenue is divided into routine and development budgets. Routine budgets are funded from

government sources and development budgets from external sources. Although routine budgets aredesignated not for development but for paying civil servant salaries and other routine operational costs,

they are almost always woefully inadequate. This creates a strong incentive at ground level to use

development funds to cover routine agency costs and to supplement civil servant salaries.27

Foreign aid funds have also been relatively large and easy to manipulate, partly because of internal

donor pressure to disburse loans; partly because many development projects are large and difficult to

supervise, and partly because of tacit donor agreement that some diversion could be tolerated if the

projects achieved their primary targets of getting infrastructure built.

Government agencies implementing development projects thus had relatively wide discretion over

large sums of moneyand strong incentives to misuse them. They were able to use this money,

however, not only to supplement civil servant salaries, but also to buy patronage.

The governments style of development directly supported the culture of impunity for corruption.

Development projects have traditionally been conducted in a top-down fashion, with outside assistance

imposed on a village without the active participation of its members. There was almost no local

involvement in development planning. Villagers became passive subjects of development, not active

agents in it. The projects were perceived by communities as handed down by an external government

over which they had little control; there was no perception that villages had any rightsor even a right

to protestunder the process. Indeed, according to one experienced development practitioner in

Indonesia, a common phrase used by villagers to describe development assistance to their communities

wasBantuan sudah di-drop: the help has been dropped.28

25 Asia Foundation. Survey Report on Citizens Perceptions of the Indonesian Justice Sector - PreliminaryFindings and Recommendations. Jakarta: Asia Foundation, 2001.26 Internal World Bank memorandum, Stephen Dice, 1997.27 All of this information is taken from Partnership for Governance Reform in Indonesia. Corruption inIndonesias Foreign Aid Programs: Naivety, Complacency and Complicity within Donor Agencies. Jakarta:Partnership for Governance Reform in Indonesia, 2001, Mimeo.28 From talk with a former head of Oxfam in Indonesia, September 2001.


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Furthermore, projects existed in an environment where all decisions, from tax to service delivery, were

top down. In a system that is almost completely formalized and non-participatory, the only means of

control and redress for complaints are formal channelswhich did not work in Indonesia as they could

be manipulated easily to serve the interests of the powerful. In this system, any protest against an

individual project necessarily translated as protest against the whole system, an infinitely graver

offence. This meant that impunity became institutionalized.Indonesian villages suffered from a failure of institutions and an almost total failure of incentives, in an

environment with large inflows of development funds and a culture of impunity for embezzling those

funds. This embedded even further the conditions for corruption.


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Chapter 2. Corrupt ion in K DP

KDP is a large, decentralized community development project in Indonesia. It covers more than 20,000

villages in approximately 27 provinces across the country. Its aims are:

To alleviate poverty by raising rural incomes To strengthen community institutions To improve local governanceKDPs key principles are community participation, transparency, and sustainability. It works by giving

villagers decision making power over funds, which can be used either as grants for village

infrastructure or as loans for income-generating ventures. The project is designed to give villagers the

chance to prioritize village development needs and a say over how village resources are used. Villages

compete with one another for project funds, giving villages an incentive to propose well-designed

projects of demonstrable benefit. The three main components of the project are unallocated grants to

communities, technical assistance, and monitoring and supervision.

The project works by giving block grants directly to each participating sub-district (kecamatan), which

usually contains about 20 villages. Each village then prepares proposals for entry into an inter-village

funding competition at kecamatan level. Villages can submit two proposals if the second comes from a

womens group. Proposals can be for a wide range of activities, from building roads or water systems

to providing seed capital for small businesses. The important thing is that all villagers are given the

opportunity to participate in the proposal preparation process, and that decisions are democratically

made. There is no outside guidance of decisions.

Once villagers have prepared their proposals and had them verified for technical feasibility, they take

them to an inter-village meeting where representatives from each village decide collectively which

proposals will be successful. The block grant to the kecamatan is usually not big enough to fundproposals from all villages, so choosing the proposals involves a process of competition, bargaining,

and compromise.

After proposals have been picked, funds are released directly to collective village accounts at the

kecamatan level. From here, money is withdrawn and given either to village implementation teams to

start buying materials for infrastructure, or to groups of borrowers to start setting up economic ventures.

If funds are used for income-generating ventures, borrowers must pay them back at market rates of

interest. The repaid funds go back into a kecamatan-level revolving fund, to be made available to other

groups of borrowers. The idea is that funds grow and are recycled to other members of the community.

At all stages of a project there are checks, balances, and mechanisms villagers can use to hold the

project accountable. There are multiple channels of accountability in projects. Primary among these isthat there are different channels for villagers to access information. In addition to the communities, the

project is monitored regularly by project facilitators, local NGOs and AJI, an association of

independent journalists. Each of these acts as a discrete center of support and information for villagers.

Each also is relatively independent from local government and village elite control.


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In addition, the project has other mechanisms of accountability. Among them are that:

Project formats and contract documents do not allow for single signatures. All financial information about projects must be made transparent and publicized widely at all

times. This takes place mainly through village meetings, local media, and posting information on

community notice boards

Accountability mechanisms whereby villagers can oversee project funds are built into the projectcycle.

Complaints

One important element of the project is

the independent, centralized system of

assistance and complaints follow-up. As a

government project, KDP is formallyimplemented through government

channels, although there is no

government control over funds. At each

level of government, from the national to

the village level, a government

representative is formally responsible for

KDP. This management system is

matched at each level by independent

KDP staffthe KDP consultants and

facilitators who at village level are elected

and at higher levels are recruited. Atnational level, the project is administered

by the governments KDP Secretariat,

matched by a KDP body called the

National Management Consultants

(NMC).

If there is a problem in a village, it can be

reported directly to the national level of

KDP, which sets into motion an

automatic complaints resolution process

(Figure 1). Although this process is notdesigned as a substitute for local

problem-solving mechanisms, it does

mean that, when pursuing their

complaints, villagers have redress to

mechanisms independent of local power

dynamics. This is a crucial factor in giving villagers control and ensuring that local government and

local elites do not have carte blanche over their actions.

Figure 1. KDP Complaint s Procedure

Complaints to

NMC

Complaints to PO

Box (anonymous)

Complaints to

KDP Secretariat

Open andregister

Decidechannels

Crosscheck/get

supporting data

Solve throughconsultant channels

Solve throughgovt. channels

Suggest type ofaction

Implement action

Get feedback from field.If problem not solved,

suggest another course ofaction

Compose officialdraft letter

Prepare officialfield trip


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Facilitators play a special role in KDP. There are both village facilitators (FDs) and kecamatan

facilitators (FKs). Village facilitators are elected. They receive small honorariums to help spread

information about KDP, ensure broad participation, especially by marginalized groups in villages, and

serve as help and contact points. Kecamatan facilitators are recruited. They run the project at sub-

district level together with their government counterparts. They are responsible, with village facilitators,

for spreading information and ensuring participation in KDP. They also serve as contact points betweenvillages and projects, and help with the complaints-resolution process. Community members often find

it easier to complain to their local facilitator rather than directly to the KDP Secretariat. Out of 124

complaints received by KDP in its first two years, 89 were from KDP staff and only 13 from

community members themselves.29

The role facilitators play in limiting corruption in KDP is crucial. First of all, they act as conveners for

projects, by getting villagers to come to project meetings. The extent to which villagers participate

depends largely on the quality of facilitation. If a facilitator succeeds in ensuring wide participation and

transparency, it makes it much more likely that corruption will be protested. Second, facilitators are an

independent source of information, both for villagers and for project staff higher up. They can give

villagers information about projects and KDP procedures, and they can help check facts if accusations

are made. Many facilitators are from NGO or reformist backgrounds, and so can act as independent

sources of other information pertinent to the villager experiences of political change. Third, the

facilitators have a power base independent of government and local elites. They therefore have less fear

of redress if they get involved in pursuing corruption cases: indeed, it is their mandate. Their role in

limiting corruption in the project is thus vital.

This does not, however, mean that facilitators are never involved in corruption themselves.

Approximately 13 percent of alleged corruption cases reported to KDP involve facilitators. Because

villagers tend to report corruption through facilitators, it is especially difficult for villagers to report

corruption when the facilitators themselves are implicated. It is thus important that villagers know that

the perpetrators of corruption will be pursued in KDP, even if they are KDP facilitators.

Fear of complaining: why would a villager complain?

Fear and intimidation play their part in KDP. Although villagers are encouraged to report corruption

cases to KDP, and although they are assured that the allegations will be pursued, there is no guarantee

of safety for those who report corruption. KDP may discourage, but cannot prevent retribution for

whistleblowers, and several cases of intimidation have been reported to KDP. Intimidation takes place

outside the village level too: KDPs independent monitors at regional levellocal NGOs and AJI, the

association of independent journalistshave also been threatened.

The question of motivation then remains. Given the history of impunity in villages, and given that

villagers may put themselves at risk for reporting corruption, why do villagers complain? We dont

know. But a few pertinent facts point to the importance again of costs and benefits. Villagers rarelycomplain as individuals. Complaining as groups spreads risk, but does not dilute the benefits of

complaining. Villagers tend also to use facilitators as channels for complaints. And, although

facilitators too are subject to intimidation, their risk is smaller because they are backed by KDP. The

motivation of groups of villagers to complain depends largely on how confident they are that action

29 Details of reported complaints can be found in the KDP Annual Report. Kecamatan Development Program.Second Annual Report 1999/2000. Jakarta: Kecamatan Development Program National Secretariat: September2000.


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will be taken if they do. This depends mainly on the strength of socialization in the villages. In some

sense KDP has been a test case; villagers say they have reported corruption because they have been

assured that, this time, it will be different: cases will be pursued and sanctions applied for wrongdoing.

Sanctions

Sanctions for corrupt behavior are built into the project cycle and, crucially, are made known ahead of

time. KDP facilitators and consultants run the risk of being dismissed or criminally charged if exposed

for corrupt behavior. Government officials may be fired or, more commonly, rotated to less desirable

posts. This can be an unpleasant experience for local civil servants, especially if they have extended

families and other ties in their communities.

The World Bank and the government have other sanctions at their disposal in KDP. They can cancel

contracts with firms that manage and recruit local KDP staff. They can, if necessary, disqualify districts

or provinces whose corruption problems are particularly bad. Finally, as a last resort, the World Bank

can delay, suspend, or block disbursement of the loan. The use of sanctions has proved especially

important in fighting corruption cases in KDP. One of its biggest challenges is how to apply sanctions

that are credible enough to act as disincentives toward corruption.

Types of corruption in KDP

Corruption cases in KDP range from the imaginative20 chickens being valued at a somewhat

expensive US$2,000to the mundane but commonkickbacks to village officials and collusion in the

procurement of goods. Most of the cases can be put into a few broad categories. The categories are not

exclusive; indeed, most cases of corruption have elements of more than one.

One of the most common types of corruption in KDP is budget mark-ups, which usually involve some

element of collusion. Most of the time, these involve reverse budget mark-ups: budgets are not inflated

in advance, implementation teams substitute cheap materials for those originally specified and

budgetedand pocket the difference (Box 1).

Box 1: Proving corruption can be difficult

Villagers in Panasakan, a small village in Central Sulawesi, noticed that the amount of wood delivered to the village for buildinga bridge seemed small compared to the amount allocated for the wood in the budget. When they conducted a field audit, theyconcluded that 8 cubic meters more wood, worth about Rp 3.6 million, should have been delivered to the village. Theysuggested that the head of the village implementation team had bought less wood than specified in the budget and pocketedthe difference. He was accused of colluding with a wood seller to verify his story. At the same time, the head of implementationaccused the villagers themselves of stealing some of the wood, and at a meeting to discuss the problem some villagersadmitted doing so. They claimed, however, to have taken only a tiny portion of the amount missing. In some corruption cases allparties may have dirty hands, including those who are relatively powerless. The case also is a good example of the point, madeoften in the corruption literature, that it can be difficult to find proof of corruption. In this case, the receipts, which were the only

possible source of proof, were allegedly forged.

Another common type of collusion is when false borrower groups are formed to get KDP credit.

According to KDP credit rules, a group that wants access to credit may borrow funds only if it has

existed as a group for at least a year. This is to strengthen social capital and to increase the probability

of repayment. Often, though, people are persuaded to pretend to belong to a borrower group, but the


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money borrowed collectively by the group finds its way only to one or two people, usually already

relatively well off.30

A third type of corruption seen in KDP consists of bribes and kickbacks to officials (Box 2). These are

rarely overt, but will come in the guise of money to process papers for KDP or other such

administrative needs. Success in obtaining these bribes depends on villager ignorance of KDPs

principles and an expectation on their part that KDP will be like previous development projects in thevillage.

Box 2: Tips and bribes in the middle of the night

In Sungai Beremas, West Sumatra, the village head allegedly received two types of bribes connected with KDP: several small-scale bribes of Rp 50,000 each to process papers for villagers to gain access to KDP credit, and four bribes of Rp 500,000each that he was accused of asking for directly by knocking on a few village doors in the middle of the night, wearing hisgovernment uniform and asking for the money. When we spoke to members of the financial management unit in thekecamatan, they insisted at first that the smaller bribes were perceived as tips, not bribes. It was just uang lelah (a tip) they said, andwas standard practice. They also claimed that, because the money came from villager pockets and not KDP funds, that it didnot count as misuse of money in KDP, even though they admitted, after our questioning, that probably if the villagers had not

paid the money, they would not have received KDP credit.Oh please, responded the team leader of the kecamatan facilitators later when told about these tips. Do you think thevillagers would just give money to the village head if they didnt have to?

There are also instances of nepotism in KDP. Often village technical advisors are chosen through

nepotism: friends or relatives of village elites may be chosen as technical advisors even though their

qualifications, if any, are inappropriate. This lack of technical expertise means that infrastructure is built

badly or even dangerously.

Many of the corruption cases in KDP, especially the larger ones, are complex and involve many

different types of corruption. They fit most appropriately under the umbrella of straightforward theft.

Jayawijaya district in West Papua (Irian Jaya) is a good example. In Jayawijaya approximately Rp 3billion went unaccounted for, through the theft and collusion among the district-level technical

consultant, contractors, suppliers, and the district co-ordination team, possibly with the involvement of

local KDP consultants and local government: in short, a complex large-scale operation.

KDP operates in a context where corruption is made easy by bureaucracy, impunity, fear, and a lack of

accountability. It is a context, though, that is shifting: political changes may be altering local power

dynamics in ways that reduce the fear of protest, and decentralization legislation may be opening up

avenues of representation and acco

village corruption in indonesia

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